Skechers Posts Record Earnings, Expects Trend to Continue
For Skechers USA Inc. (NYSE: SKX) 2014 is turning out to be an exceptional year. After a robust first-quarter performance, the company yet again came up with stellar quarterly results. Investor confidence was reflected in an 8.1% rise in stock price in the after market trading hours.
Second-quarter 2014 earnings of 68 cents per share was way ahead of the Zacks Consensus Estimate of 41 cents. Moreover, the reported figure rose substantially from 14 cents in the prior-year quarter.
The robust results were owing to strong top-line growth and effective cost management. Last quarter, the company had shifted a portion of advertising expenses to the second quarter as Easter fell in April this year.
Increased demand for products, product innovation across multiple categories and healthy performance across all revenue channels led to a 37.1% rise in revenues to $587.1 million in the quarter, which surpassed the Zacks Consensus Estimate of $505 million.
With increased focus on the new line of products, cost containment, inventory management, global distribution platform and backlogs, the company is confident of sustaining the growth momentum throughout 2014.
Gross profit for the quarter soared 38.2% to $269.4 million while gross margin increased 40 basis points (bps) to 45.9%. The growth was primarily driven by increased sales and a favorable product mix.
Operating income for the quarter increased over threefold year over year to $53.8 million while as a percentage of sales, it improved 520 bps to 9.2%.
Segmental Sales Synopsis for Q2
The domestic wholesale business marked a revenue increase of 35.4%, reflecting a jump of 30.1% in pairs shipped that benefited from relentless product development initiatives across multiple lines and an increase of 4.0% in the average price per pair.
Skechers' international business revenue increased 54.0% on the back of a 42.7% rise in international subsidiary and joint venture (JV) sales as well as an improvement of 87.3% in distributor sales. Though tough macroeconomic conditions in several key markets impacted Skechers' international distributor business, the company's partners in Philippines, Mexico, Turkey, Taiwan, South Korea, New Zealand, the UAE and Australia experienced growth.
Looking ahead, this Zacks Rank #2 (Buy) company expects the momentum witnessed during the quarter in subsidiary and JVs to continue in the third quarter and last throughout fiscal 2014.
On a combined basis, retail business sales grew 28.8% and comparable-store sales jumped 13.9%. Domestic retail sales rose 20.9% while comparable-store sales increased 12.1%. International retail sales soared 75.1% and comps climbed 24.6%.
Skechers had 413 retail stores and 524 distributor, JV and licensed stores under operation at the end of second-quarter 2014. At the quarter-end, the company's JV and licensed stores comprised 153 outlets under JVs in Asia including stores operated by licensees, 337 distributor-owned or licensed Skechers retail stores globally and 34 company-licensed locations in Brazil, Canada, Spain, France, Portugal and Ireland.
During the second quarter, the company opened 16 stores, including 13 domestic stores and 3 international outlets. These comprise new concept stores in California, Florida, Iowa, Kansas, Louisiana, New Jersey, Tennessee, Texas and Washington, as well as outlets in Canada, France and the U.K. Further, the company closed 2 domestic concept stores in the quarter.
So far, in the third quarter of 2014, Skechers has opened 2 outlets, one new concept store each in California and Texas. Going forward, the company plans to open 20–25 retail stores during rest of the quarter and another 20—25 stores in the fourth quarter.
During the second quarter, Skechers opened 34 distributor, JV or licensed stores, which included the company's first store in Libya, 6 stores in India; 4 in Mexico; 3 in Australia; 2 each in Malaysia, Georgia and South Korea and 1 each in Saudi Arabia, Estonia, Latvia, Indonesia, Macau, Denmark, Kenya, Russia, Belarus, Taiwan, Brunei, Hong Kong Portugal and Turkey. One South Korean outlet was closed in the quarter.
So far, in the third quarter of 2014, Skechers has opened 3 distributor JV outlets. Going forward, the company plans to open about 60–65 more stores in 2014.
Overall, the company targets to increase its store count to about 1,050 by the end of 2014.
Management remains committed to its focus on new lines of products, opening additional Skechers stores and increasing distribution channels with the development of international distribution agreements to boost sales and profitability. Moreover, Skechers' international business remains a significant sales growth driver for the company. Also, through its distribution networks, subsidiaries and JVs, Skechers is poised to enhance its global reach in the footwear market.
Other Financial Aspects
Skechers, which competes with Deckers Outdoor Corp. (NASDAQ: DECK) and Nike Inc. (NYSE: NKE), ended second-quarter 2014 with cash and cash equivalents of $414.8 million, long-term debt of $110.3 million and shareholders' equity of $1,001.8 million, excluding non-controlling interest of $53.2 million.
Capital expenditures for the quarter were approximately $12.6 million. The company expects another $35-$45 million worth of capex in the 2014 mainly diverted towards store expansion and remodeling.
Other Stocks to Consider
Another stock worth considering in the shoe space is Brown Shoe Co. Inc. (NYSE: BWS), which also sports a Zacks Rank #2.
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